A couple of weeks ago I wrote an article called “What Would It Take to Make You Feel Secure?” I thought I’d covered it. But I kept having the same conversation at two different parties at The FI Collective here in Longmont, and again at a friend’s birthday dinner, and I realized I’d skipped the one question that could actually make people relax: what would you do if the worst case actually happened?
Not “would the worst case happen.” We’ve beaten that horse to death already and the horse is fine, it turns out. The real question is what your actual move would be if it did. And most people in the FI community, even the ones who’ve run every retirement calculator known to mankind, have never once written that plan down.
Quick Recap, Because the Math Still Isn’t the Problem
In case you missed the last one: Bill Bengen did an absurd amount of math in 1994 and came up with the 4% Safe Withdrawal Rate. Since then, Michael Kitces, the Trinity Study researchers, Wes Moss, and a whole crowd of other smart people have independently run the numbers and landed in the same place. The 4% rule holds up. For a lot of retirees, it’s even a little conservative.
So no, the math is not broken. Multiple unrelated researchers keep confirming that. If you’re still lying awake worried the math itself might betray you, I want you to notice that this isn’t actually a math conversation anymore. It’s a “what if” conversation, and “what if” questions don’t get solved by better spreadsheets. They get solved by having an actual answer ready.
That’s what a contingency plan is. It’s the answer you write down in advance, so that if the bad scenario shows up, you’re not improvising while panicking. You’re just executing step one.
The Guardrails Refresher (Because They Matter Here Too)
Financial advisor Aubrey Williams, a longtime member of the FI community, has become one of the best voices on this topic, building on research from Jonathan Guyton and William Klinger back in 2006. The idea is simple. Instead of picking one withdrawal rate and gluing yourself to it forever, you set upper and lower guardrails around your spending.
Here’s a plain-numbers version. Say you retire with $1.5 million and plan to withdraw 4%, or $60,000, in year one. Using a classic Guyton-Klinger style setup, your guardrails might sit about 20% above and below that starting rate. If the market’s kind and your effective withdrawal rate drops to around 3.2%, you’ve hit the upper guardrail, the “prosperity rule,” and you get to raise spending, often by about 10%. If the market’s rude and your effective rate climbs to around 4.8%, you’ve hit the lower guardrail, the “preservation rule,” and you trim spending by roughly 10% to protect the portfolio.
The exact percentages get customized to your actual plan (Aubrey runs this through historical modeling with tools like FIREcalc rather than a single fixed formula), but the structure is the point. Guardrails exist specifically so you’re never standing in a falling market wondering what you’re supposed to do. You already know. That, by itself, makes a lot of people more comfortable with the idea of retiring in the first place, because “I have a rule for this” is a much calmer sentence than “I guess we’ll see.”
But guardrails handle the “adjust your spending” scenario. They don’t cover the genuinely ugly stuff. That’s where a contingency plan picks up the slack.
What a Contingency Plan Actually Covers
A contingency plan is not the same thing as a withdrawal strategy. Guardrails tell you how to adjust your spending when your portfolio moves. A contingency plan tells you what you’d actually do in the scenarios that guardrails alone can’t fix. Things like:
A genuinely catastrophic, multi-year market crash. Not a normal 20% dip, an actual “this is the worst sequence of returns in the historical record” event. What’s your floor? At what portfolio value would you go back to some form of paid work, and what work would that realistically be? (Keep in mind, your skills could be outdated, and you could be competing with hundreds or thousands of other out of work people for the same position.)
A health crisis that blows past your insurance. Do you know your out-of-pocket max? Do you have a plan for a surprise diagnosis that changes your monthly expenses overnight?
A concentrated position tanking. If a meaningful chunk of your net worth sits in one stock (tech employees, I am looking directly at you), what’s your plan if that specific company has a terrible year – or decade?
A dependent situation changing. Aging parents who suddenly need care. A kid who needs help you didn’t budget for. These show up uninvited and they don’t care about your withdrawal rate.
Losing a spouse or partner unexpectedly, financially and logistically, not just emotionally. Do you both know where the accounts are? Does the surviving partner know how any of this actually works?
None of these are fun to think about. That is exactly why almost nobody writes them down, and exactly why writing them down helps so much. A vague fear that lives in the back of your head at 2 a.m. is exhausting. The same fear, written out with an actual first, second, and third move attached to it, becomes a document you can close a laptop on and go to sleep.
Building Your Own Contingency Plan (Without Losing a Weekend to It)
You don’t need a 40-page binder. You need answers to a handful of specific questions, written somewhere you’ll actually find them again.
Start with your floor number. What’s the absolute minimum monthly spend you could live on if you had to, and what would you actually cut to get there? Be specific. “Cancel some subscriptions” is not a plan. “Cancel the streaming services, drop to one car, pause the travel budget, and that gets us to $4,200 a month” is a plan.
Next, figure out your bridge options. If your portfolio dropped below your lower guardrail and stayed there, what’s the actual bridge back? For most people it’s some flavor of part time or consulting work, and the sooner you identify what that would realistically look like, the less terrifying “going back to work” sounds. It’s a lot less scary as “I’d pick up 15 hours a week doing the thing I already know how to do” than as a vague cloud labeled failure.
Then write down your people. Who do you call first if something goes sideways? Your CPA, your financial planner, your spouse, whoever holds the actual account logins. If you’re the spreadsheet person in the relationship, does your partner know where anything is? This one sounds obvious and it is shockingly often skipped.
Finally, put a number on your specific risk. If you’ve got concentrated stock, real estate, or any other lopsided exposure, write down what happens to your plan if that specific thing drops 50% and stays down for three years. Not “the market in general.” That specific thing. Vague worry is paralyzing. Specific worry has a specific answer, and you just wrote it.
Okay, But Will You Actually Use It?
Here’s the part I have to be honest about. You can hand a FI person the cleanest math in the world, a full guardrails plan, and a detailed contingency document, and some of them will still find a reason not to pull the trigger on retirement.
We’ve written before about One More Year Syndrome, and it’s the same root issue showing up again. The math was never really the obstacle. A nervous system that’s spent a decade or two in “not enough” mode doesn’t get the memo just because the number finally showed up. You can have a fully funded plan, a guardrails system, and a written contingency plan for the worst realistic outcomes, and still feel like you’re standing on thin ice – that a team of engineers has already confirmed will hold.
This is exactly why the contingency plan matters so much psychologically, not just financially. It’s not really about the 2% chance the worst case happens. It’s about giving your brain something to point to instead of an open-ended, formless fear. “What if the market crashes for five years” turns into “I already know I’d trim to $4,200 a month and pick up consulting work, and I wrote that down eight months ago.” That’s not a guess anymore. That’s a plan you’ve already tested in your own head, during a period of calm, which makes it a lot harder for anxiety to argue with.
The Actual Takeaway
The 4% rule works, and multiple independent researchers keep confirming that from different angles. Guardrails give you a real, numbers-based system for adjusting your spending in both good years and bad ones, so you’re never guessing in a panic. And a written contingency plan handles the scenarios guardrails can’t, the genuinely rare, genuinely bad ones, so your brain has an actual answer instead of an open loop.
None of this requires you to be a financial planner. It requires about an hour with a blank document and the willingness to write down the version of the worst case you’ve been avoiding. Once it’s written, it stops living in your chest at 2 a.m. and starts living in a folder you can close.
The math already did its job a long time ago. The contingency plan is what finally lets you believe it.
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